Do you know how much cash you have? Do you know how that cash flows through your business?

The amount of cash you have on hand is one of the most important metrics for the growth and survival of your company. As a business owner three of your primary financial responsibilities are:

• Being aware of the business’ cash position
• Actively guiding the business towards attaining more cash
• Maximizing the return on cash reserves

To put it simply, you need to know where your cash is, plan its path through the business and how to make the most of every dollar.

Think of cash as the fuel that runs your business. Lacking cash can leave you stranded on the side of the road while the competition zooms by. A business, like a car, won’t go anywhere without fuel. The last thing you want is to be walking for miles with that gas can in your hand.

Accordingly, you must be aware of how much fuel you have in your tank at any time. You must understand the efficiency in which your business is burning it, where your next fill-up is coming from, and how well your reserves are performing. How do you monitor all this? By implementing an effective cash management system; which forms a part of every well managed company’s financial controls.

A Cash Control System

Managing this vital component requires the use of simple, well-documented control systems for the money flowing through the business. It needn’t be an overly complex system, but it must cover two categories: money coming in and money going out.

Money coming into the business includes:

• Sales Receipts
• Cash Handling
• Credit Transactions
• Invoicing and Accounts Receivable
• Collections

 Money going out of the business includes:

• Purchasing
• Accounts Payable
• Inventory Control
• Payroll

Keeping the Cash Flowing In Every Stage of Business

The complexity of your cash management systems will depend on your business’ stage of development.  

In the infancy or young stage of a business, you’re likely to experience periods of growth. Your cash is cycled from revenue to expense very quickly during this time, allowing just enough cash flow to add resources or fulfill demand. If at any point during this stage, there is a major cash shortage, you could be in big trouble. Your cash management system provides an early detection system for such events and allows you to make adjustments before it’s too late.

As your business matures, your cash management priorities shift slightly from a purely internal perspective to a more balanced internal and external focus. Cash on hand and meeting the day-to-day needs of your business is always top priority, but cash is too valuable to be sitting around doing nothing. Businesses with cash reserves can create competitive advantages through joint ventures, acquisitions, research and development, traditional savings and smart investments. While many of these activities may seem more likely for large public corporations, by focusing your efforts in a similar fashion, cash savvy small companies can leverage their cash position as a competitive strategy.

Where do you start?

The fastest way to get your cash and related money management systems in place is to perform a quick audit of your current systems. From there you can create an action plan to get from where you are, to where you need to be.

Begin by assigning a performance score to rank each component of your cash system according to how well it meets its intended goal After you’ve scored each component, or sub-system, prioritize the list in terms of relevancy and urgency. This becomes your development plan for making improvements.

For example, a retail client of mine recently set up a ranking system from -10 to +10, and ranked her cash management systems as follows:

• Sales Receipts +10
• Cash Handling +10
• Credit Transactions 0
• Invoicing and Accounts Receivable -5
• Collections -10
• Purchasing -10
• Accounts Payable 0
• Inventory Control  -5
• Payroll +10

After a careful consideration of which systems would affect her cash flow fastest she prioritized her system development as follows: inventory control, invoicing and accounts receivable, credit transactions, collections, purchasing and accounts payable. This simple step gave her a clear path towards improving all her cash management systems. Of course, each business is different, but this same ranking system and prioritizing your development will lead to the same result my client achieved: a feeling of comfort and calmness, as she experienced a sense of control over all areas of her cash systems.

Share Your Story

Have you implemented a cash management system? How has it helped you?

Six Steps to Maximize Cash Flow

Need help controlling the cash flow in your business? At our Six Steps to Maximize Cash Flow virtual seminar (next one is August 20) an E-Myth Business Coach will help you identify and maximize the cash in your business. We’ll offer tips you’ve probably never even considered…

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This is a post by guest blogger Jonathan I. Ezor.

The first blog in this series discussed how while some words do have legal weight, agreements should still be written in clear, understandable language in order to do what they're meant to. When it comes to legal "magic words," one of the major ones is "warranty." Merriam-Webster defines it as:

1 a : a real covenant binding the grantor of an estate and the grantor's heirs to warrant and defend the title b : a collateral undertaking that a fact regarding the subject of a contract is or will be as it is expressly or by implication declared or promised to be 2 : something that authorizes, sanctions, supports, or justifies : warrant 3 : a usually written guarantee of the integrity of a product and of the maker's responsibility for the repair or replacement of defective parts

Law.com's dictionary takes a different approach:

n. a written statement of good quality of merchandise, clear title to real estate or that a fact stated in a contract is true. An "express warranty" is a definite written statement and "implied warranty" is based on the circumstances surrounding the sale or the creation of the contract.

It's a broader definition, encompassing not only product quality but "that a fact stated in a contract is true." What warranties (may) do in agreements is provide enforcement not only for acts but for the underlying assumptions.

With contracts for selling goods, laws like the Uniform Commercial Code may insert warranties automatically unless the parties "disclaim" them. For services, though, the warranties will stand on their own, and need to be written and read very carefully to understand what they do and don't promise.

The credit crunch has forced people across many sectors to rethink their assumptions about how they do business, the roles of the individual in the larger system, and the very future of the system itself.

These reflections are beginning to bear fruit. We've begun to see a shift from the old, linear transaction-based approach to business toward a new, circular view, in which shared resources can better benefit all in a way that adds depth (and value) to this future economy.

Economists describe this new model in many ways. One way is to use human cellular structures as a metaphor for economic growth. Call it cellular economic theory.

What do cells tell us about business? Well, consider that cells that grow continually and exponentially (like we've been taught our economies should grow) are a form of cancer. We know intuitively and logically that continuous growth can't be sustained in living things. It's likewise unsustainable (and undesirable) in business.

But that's our current model--to just keep growing. And in this model there's no alternative to growth, only stagnation which leads to death. The result of this is policy at every level (micro, macro, corporate and public) that champions growth at all costs.

Cellular economic theory suggests an alternative to linear growth: circular growth. In the body, cells grow. Cells die. New cells grow. New cells die. On and on. We sustain ourselves through regeneration. In business, a form of staged, regenerative growth could become the norm. The growth may not even change the size of the "economic body."

Here, growth is not seen as the ultimate byproduct of an economic life cycle, but just an important one. Growth becomes one of several life cycle stages that are primarily about replenishment. Instead of growing in size and scope, companies grow in capabilities, processes and offerings. New ones come along. Old ones dies. Just like cells, growth becomes regenerative--only what needs replacing is replaced, reducing waste and improving society along the way.

For example, a brewery in India is using cellular economic thinking to grow its bottom line without producing and selling more beer. Instead it's using chaff and grain detritus to create fertilizer and biofuels--regenerating resources to lower their own production costs while widening the life cycles of their inputs.

KATIKA, a Swiss wood furniture maker, is reforesting at a rate greater than their production, using profits from their sales today to ensure the availability of resources later. In the meantime, their reforestation projects create local jobs and other sustainable benefits (home for wildlife and food, CO2 reduction) while increasing the value of formerly degraded land holdings.

In a cellular economy, key metrics change. GDP growth is less important than GDP regeneration. Successful growth takes into account the sustainability of that growth.

The most profound change in a cellular economy is the devaluation of the transaction. Today, economic value is determined primarily by the value of the transaction. To grow (even just to survive), we must keep trading, keep consuming--no matter how wasteful the process becomes--because success is creating more transactions. This keeps us locked into a linear, growth oriented paradox.

Fortunately, (if not painfully), the Internet is exposing the impossibility of sustaining a transaction-based economy. As the net drives the cost of certain goods and services toward zero, it strips profit from transactions.

In publishing, for example, the cost of information is falling while sources multiply. Same for music and other creative enterprises. Same for micro-lending versus traditional banking. Fashion and retail. Oil. Anywhere there's a middle man between the natural resource and the end consumer, the Internet is obviating the need for the middle man.

And, in place of transactions and supply chains (which are, essentially, series of middle men), communities are gaining leverage and power from these shared commodities like news and gas.

A low-level web of constant relationships, circular, cellular systems where shared, collaborative contributions are the norm, is developing. Here, the value resides with relationships, not transactions. Maybe, instead of buying and selling more and more in a mad race for grabbing the most growth, the future will be about a collaborative, community-oriented regenerative growth model.

This "economy of shares" relies on crowd-sourced contributions, a free market, and a fair dose of incentives for sustainability. When it becomes bad business to waste resources in pursuit of profit, then the regenerative model takes hold and we can kiss goodbye to the things we know we don't need but can't seem to give up. Wasteful packaging. Super-sized food portions. Environmentally damaging newspapers. Gas-guzzling SUVs.

Eventually, in a regenerative economy, we learn to focus on kaizen--constant improvements, as opposed to an ever expanding volume of low-quality transactions and markets. Call it the co-op economy. It's the kind of economic system we always say we want but can't bring ourselves to build.

If the experts are right and we do indeed need to find more sustainable ways of living, and the bankers are right in saying that we have to live within our means, and the technologists are right saying that collaborative systems are the future, then it stands to reason that the next evolution in economics is to a more natural, life-like system.

We are moving to a world where transactions will happen instantly, on demand, for free. We are moving to a time when transactions can't sustain an economy. We are realizing all systems are like biological systems--even economic ones. Growth-at-all-costs business is malignant.

It's time to apply that broad realization in new ways to the situation at hand.

Stan Stalnaker is the Founder and Creative Director of Hub Culture Ltd, a social network that merges online and physical world environments.